Hospitals Use The Chartis Group Financial Model to Forecast Impact of Health Reform

The Patient Protection and Affordable Care Act (PPACA), more commonly referred to as "the healthcare reform act", will significantly impact patient volumes and revenues for hospitals and health systems in the coming years. Since the bill's passage, hospital executives have been attempting to decipher the new legislation's impact on their institutions. The countervailing forces that PPACA will generate make it difficult for health systems to determine the ultimate impact on their organizations. As a result, leading hospitals and health systems nationwide have turned to The Chartis Group, a leading advisory services firm dedicated to the healthcare industry. The Chartis Group has developed a proprietary analytic tool to provide healthcare executives a picture of the future under reform and help them assess alternative strategies for their organizations. The analysis models the impact of different market and policy variables driven by the reform legislation.

The Chartis Group, whose clients include 17 of the top 20 hospitals in the country, developed the analytic tool over several months as the legislation was still being debated. The model analyzes the implications of payment reform and insurance coverage expansion in combination with detailed local market data to project healthcare services utilization changes and other financial impacts beginning in 2011 and going out as far as 2019. The firm's tool also incorporates market forces outside of the reform legislation that impact a healthcare provider's financial position, such as aging of the population and changes in Medicaid and other reimbursement rates.

Pamela Damsky, a Principal at The Chartis Group who developed the tool states, "The model reduces uncertainty and helps hospital executives and board members make educated decisions. We help our clients see where they have strengths and where they may be vulnerable given the impending changes and then we help them determine how those factors should influence their strategic direction."

The Chartis Group has used the proprietary tool with a variety of clients, from community hospitals to academic medical centers. The model approaches the changes resulting from health reform from four perspectives: population and demographic shifts, transformations in care delivery and utilization, anticipated reimbursement changes, and fixed payment adjustments. It combines data at the national, state and local levels, along with hospital-specific information and components of the reform legislation to provide results tailored for each organization.

"Each analysis, and the resulting recommendations, is as unique as the individual institutions themselves. Local market conditions alone vary tremendously in terms of the number of uninsured and Medicaid reimbursement levels," states Steve Levin, Director at The Chartis Group and leader of the firm's Alignment and Accountable Care practice who oversaw development of the tool, "However, after using our model with multiple clients across the country, we have observed some consistent trends that will likely apply to most health systems."

The Chartis Group consultants expect most of the current self-pay population to become insured through Medicaid expansion and a smaller percentage through health insurance exchanges. The improved coverage among this newly insured population will likely increase utilization of healthcare services, assuming access to health care providers willing to accept Medicaid. Health reform also presents the risk that patients will leave current commercial insurance if they become eligible for Medicaid or enroll in less expensive insurance options through the exchanges. Both Medicaid and exchange-based plans will offer less favorable reimbursement rates, potentially leading to significant declines in provider revenues. In addition, while the allocation of the federal Disproportionate Share, also known as DSH, reduction is yet to be determined, those fixed payments are likely to decline at rates comparable to that of total federal funding levels, approximately 50% between 2013 and 2019. Expected Medicare rate cuts will only exacerbate the situation for healthcare providers, according to Levin.

This analysis is just one component of a suite of proprietary models, methodologies, and frameworks developed by The Chartis Group's Alignment and Accountable Care Practice. The consultants also work with clients using an Accountable Care Readiness Assessment tool, an Accountable Care Development process, and various models for physician alignment to help healthcare organizations prepare for the future.

About The Chartis Group

The Chartis Group is an advisory services firm that provides management consulting and applied research to leading healthcare organizations. The firm is comprised of uniquely experienced senior healthcare professionals and consultants who apply a distinctive knowledge of healthcare economics, markets, and organizational dynamics to help clients achieve unequaled results. The Chartis Group has offices in Boston, Chicago, New York and San Francisco.